We hope this newsletter finds you and your family well. We would like to provide an update on a reconciliation bill under consideration in Congress with proposed tax law changes that may impact your estate plan. While we normally summarize legislation after it is signed into law, some of the proposed changes could have significant implications for existing estate plans, and clients may want to consider taking action before any legislation is enacted to lock in current exclusions and tax benefits.

It is important to put all of this into perspective—similar tax proposals that scale back estate planning techniques and exclusions are made almost every year, yet few become new law; even when legislation is passed, the final version is often significantly different from the initial bill. This year’s bill, however, is receiving a good amount of attention and, whether it is just a result of the current political landscape or a sense that there is a greater chance of enactment, we are seeing increased interest in lifetime gifting. But we don’t think that means clients should rush to make significant gifts they would not otherwise make out of fear of losing out. Instead, we think the timing may be right for those clients who have been planning to gift in the near term to consider accelerating those plans in order to benefit from the current exclusions and laws.


Elimination of Certain Gifting Techniques for 2022
The Bill proposes changes to the rules governing grantor trusts. Many irrevocable trusts, such as family gifting trusts, irrevocable life insurance trusts (ILITs), grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs), and others, are classified as grantor trusts designed to receive assets (and the associated future appreciation of such assets) for the benefit of family members. The trust assets are removed from the grantor’s estate for federal gift and estate tax purposes, but the grantor is often considered the owner for income tax purposes. As a result, during the grantor’s lifetime, income earned by the trust is reported on the grantor’s personal income tax returns, which generally allows the trust to grow undiminished by income taxes. The proposals in the bill set out to remove many of these benefits and may result in the trust assets being included in the grantor’s estate. If enacted, these changes would essentially take away the effectiveness of many of these long-standing planning techniques.

Most of the potential changes would take effect on the date of the enactment of the Bill, which is proposed for January 1, 2022, but the effective date remains uncertain. While all grantor trusts currently in existence or created and funded before the effective date should be able to utilize the tax benefits under current law, future gifts to established grantor trusts or trusts created after the date of enactment face potentially adverse gift, estate and income consequences.

Special Consideration for ILITs
Many grantors of life insurance trusts make yearly gifts to the trusts which, in turn, are used to pay insurance premiums. Given the potential of future contributions to an ILIT being pulled back into the estate of the grantor, some clients with ILITs may consider making a lump-sum gift of future premiums to the ILIT.


Changes to the Basic Exclusion Amount for 2022
For 2021, the federal estate and gift tax basic exclusion amount increased to $11.7 million, which included an inflation adjustment. This means that an individual can transfer up to $11.7 million during life or at death, free of federal gift and estate taxes. The bill includes a provision that will reduce the exclusion amount from $11.7 million to approximately $6 million after an adjustment for inflation. This would be accomplished by accelerating to the end of this year a sunset provision in the current law to reduce the exclusion after the end of 2025.

It is important to keep in mind that it would be necessary to gift in excess of $6 million to start benefiting from the portion of the exclusion that the bill sets out to take away. Accordingly, although gifting to a grantor trust before the end of the year in any amount should be considered for the reasons stated above, gifting now is especially significant for those individuals who intend to give away more than $6 million of assets and use the current exclusion before some of it may disappear.

Particular attention must be paid, however, for residents of Connecticut—the only state that has a separate gift tax. Connecticut increased the basic gift and estate tax exclusion in 2021 from $5.1 million to $7.1 million (and it is set to increase to $9.1 million in January). As a result, any cumulative gifts made over $7.1 million would trigger a Connecticut gift tax which could impact a decision to make a larger gift this year, especially given the uncertainties surrounding the enactment of the bill.

In New York, the basic estate exclusion amount increased in 2021 to $5.93 million. Although New York does not have a gift tax, it does currently have a three-year lookback that brings certain gifts back into a decedent’s estate.


Removal of Discounts for Non-Business Assets
The bill also includes proposals to remove valuation discounts for gifts of non-business assets in limited liability companies (LLCs), limited partnerships (LPs) and other private entities. In general, gifts of a minority or non-controlling interest in one of these entities are often valued at a lower amount to account for (i) lack of control and (ii) lack of marketability, regardless of whether the entity is involved in an active business. These discounts may go away if the entity’s assets are considered passive assets intended only for the production of income, such as publicly-traded securities or non-operating cash.

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We look forward to hearing from you if you have any questions or would like to review your estate plan. Please contact Mark Chioffi at (203) 973-5280 and This email address is being protected from spambots. You need JavaScript enabled to view it. or Aoife Cox Rinaldi at (203) 973-5288 and This email address is being protected from spambots. You need JavaScript enabled to view it..